Speaking after a meeting with the king of Bahrain, Hamad bin Isa al-Khalifa, Merkel welcomed the common approach taken by the Gulf states in preparing for next month's conference on how to resolve the global financial crisis.

Merkel said she was pleased to learn that Saudi Arabia would take part in the Group of 20 meeting hosted by US President George W. Bush in Washington on Nov. 15.

Hamad, who is paying a four-day visit to Germany, said his country wanted "to contribute to a new international financial system" in which Germany would also play a role.

The two countries, he said, also want to promote the peace process in the Middle East.

The monarch called the meeting with Merkel extremely fruitful and said the two countries had agreed to step up consultations between their foreign and interior ministries.

King keen on more cooperation with Germany

He said Bahrain was interested in expanding cooperation with Germany in the fields of education and culture.

"We would like to see a German university established in Bahrain," he said.

Merkel also praised the political reforms introduced in 2004 which gave Bahrain an elected lower chamber of parliament and an independent judiciary.

"I believe the reforms that have been carried out are exemplary," she said. "The coexistence of the different religious denominations is also exemplary for other states in the Gulf region."

Earlier, Industry and Commerce Minister Hassan bin Abdalla Fakhro said Bahrain had weathered the financial crisis better that most but could be affected if oil prices continue to fall.

"I think the whole Gulf region will not be hurt as much as other economies in the world," the minister said in an interview with the DPA news agency.

All economies need to take responsibility, says Fakhro

Fakhro said it was important for the world's leading industrial nations as well as emerging economies and regional groupings to cooperate in order to find a way out of the dilemma.

The minister admitted that his country was affected by the volatile oil market which has seen prices slip back from nearly $150 (117 euros) a barrel in July to around$ 64.60 today.

Bahrain derives a large portion of its income from oil and if prices remain depressed it will have a negative affect on the country's national budget, he said.

"That will reflect on the provision of services to the people, particularly in education and health, social assistance and employment ... By how much I don't know. It's early days, but it will affect it and I hope the affect will be minimum."

During his talks in Germany, the minister discussed the prospects of a monorail link across Bahrain. German firms were in the running to build it, but no final decision had been made, he said.